Democrats to kill 401(k)s for … privatized Social Security?

posted at 9:30 am on October 23, 2008 by Ed Morrissey

In 2005, George Bush proposed privatizing a portion of Social Security contributions to allow workers to control their own funds and hopefully outperform the woefully inadequate entitlement system. The partial privatization would eventually have helped postpone or eliminate the insolvency of Social Security, but Democrats screeched that the GOP wanted to steal benefits from Grandma and effectively killed the debate. To this day, they accuse Republican candidates of supporting Bush’s partial privatization plan as though it were the equivalent of Teapot Dome.

Powerful House Democrats are eyeing proposals to overhaul the nation’s $3 trillion 401(k) system, including the elimination of most of the $80 billion in annual tax breaks that 401(k) investors receive.

House Education and Labor Committee Chairman George Miller, D-California, and Rep. Jim McDermott, D-Washington, chairman of the House Ways and Means Committee’s Subcommittee on Income Security and Family Support, are looking at redirecting those tax breaks to a new system of guaranteed retirement accounts to which all workers would be obliged to contribute.

Hmm …. “a system of guaranteed retirement accounts to which all workers would be obliged to contribute.” That sounds very, very familiar, doesn’t it? Don’t we already do this with Social Security?

A plan by Teresa Ghilarducci, professor of economic-policy analysis at the New School for Social Research in New York, contains elements that are being considered. She testified last week before Miller’s Education and Labor Committee on her proposal. …

Under Ghilarducci’s plan, all workers would receive a $600 annual inflation-adjusted subsidy from the U.S. government but would be required to invest 5 percent of their pay into a guaranteed retirement account administered by the Social Security Administration. The money in turn would be invested in special government bonds that would pay 3 percent a year, adjusted for inflation.

The current system of providing tax breaks on 401(k) contributions and earnings would be eliminated.

That means your employer can no longer write off their contributions to your 401(k), and your capital gains would be taxable year-on-year. In other words, it becomes just another investment or savings account, with no tax benefit at all, and no employer contribution. Instead, Uncle Sam would give you your “matching” funds — up to a whopping $600 per year! Whoopee!

As Michelle Obama says, you could buy a pair of earrings every year … except, of course, you can’t. It’s in The Lockbox, defined by politicians as Locked Away from You but Accessible to Us. It goes there along with 5% of your gross earnings, apparently to play with the 7% of your gross earnings that already goes to Social Security. And what do they do with the money? They give you government bonds as your only investment option.

Maybe you’ll be lucky, and they’ll have Franklin Raines running the agency issuing those bonds.

The Democrats want to end the private retirement system that has allowed Americans to become a vast investor class and put them back in thrall of the federal government. This is nothing more than a second welfare system that would sit on top of the crumbling Social Security entitlement. It would leave the American working and middle classes with no retirement option other than a government handout.

If the Democrats control both Congress and the White House, kiss your 401(k)s goodbye, and get into the bread lines first before the crowd arrives. (via Q&O)

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